5th Bimonthly credit policy – Remain invested to grow

Author – Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life Insurance

In line with our expectations, the RBI has kept the policy rates unchanged in its 5th Bi-monthly Monetary Policy statement of this fiscal today. RBI mentioned that the 50 bps cut in its previous policy in Sep 2015 was front loaded in response to weak domestic and global demand that was holding back investment. RBI reiterated its accommodative stance, while mentioning that there are downside risks to its growth and inflation targets for FY16.
RBI has retained its growth projections at 7.4% for the fiscal with a mild downside bias, while noting that the economy is in the early stages of a recovery.  Since Sep 2015, inflation has been as anticipated, and RBI expects it to rise further until Dec 2015 before plateauing.  RBI mentioned in the statement that the Jan 2016 CPI inflation target of 6% was within reach. RBI said it shall follow developments on the commodity prices, especially food and oil, inflationary expectations and external developments. The implementation of the 7th Pay Commission proposals and its effect on wages and rents shall be a factor in RBI’s future stance, which however RBI maintains shall be offset by appropriate budgetary tightening by the Government as part of fiscal consolidation path.
We expect  interest rates to remain on a downwards trajectory over the coming months and expect RBI to stay accommodative in the coming months, with a CPI inflation target of 5% by Mar 2017. The improving macro-economic scenario of the Indian economy presents good investment opportunity for Policyholders. Policyholders would be well placed to benefit from the economic revival if they continue to pay their premiums regularly and remain invested in the India growth story.

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